At one moment in Cynthia Ozick's first novel, Trust (1966), one of the earliest fictions to deal with the immediate aftermath of Nazi anti-semitic savagery, a small American girl making her first visit to postwar Europe can't help but vomit a "Mediterranean of bad milk" up the side of an abandoned German tank.

Though Ozick is one of America's most self-consciously cerebral writers, a similar and righteous gut reaction has characterised the relationship between "the country of illusion" as she calls America in The Cannibal Galaxy (1983), and Europe, "the bled planet of death camp and war" for 40 years of her fiction. Her subject, so often, is literature itself - though for Ozick, paradoxically, there is no such thing as "literature itself", or literature in a vacuum. For her, "literature is for the sake of humanity". She is a writer innately drawn to paradox, and to the moral questions inherent in the relationships between richness and poverty, mind and body, history and imagination. She also deals repeatedly with the dynamic not just between Jew and diaspora but between being a writer and being a Jew. "To be a Jew is an act of the strenuous mind as it stands before the fakeries and lying seductions of the world, saying no and no again as they parade by in all their allure. And to be a writer is to plunge into the parade and become one of the delirious marchers," she says.

What's truly a paradox, though, is how little the agile, wise writings of this accomplished and stimulating novelist, essayist and stylist are known in the UK. Perhaps it is because nothing is ever simple in Ozick's work, where, for instance, a rabbi might fall in love with a tree ("The Pagan Rabbi"), or a woman can be simultaneously brutally murdered and living a socially progressive life as the mayor of New York ( The Puttermesser Papers 1997); perhaps the shortlisting of The Bear Boy for the new international Man Booker Prize will redress it a little.

The novel is set in a time of both aftermath and foreboding. It is 1935 and Rose Meadows, a 20th-century Fanny Price, "not yet out of my teens, historyless", daughter of an inveterate gambler and a dead mother, is lodging in a backwater US town. She loves novels. She reads Jane Eyre "and admired the gravity and independence of a sad orphanhood". All at once she is orphaned and homeless, and takes a job that will relocate her to New York as an assistant to Professor Mitwisser and his large family, themselves recently "relocated" from Berlin.

The Mitwissers, formerly rich and distinguished, are now near vagrant. Professor Mitwisser is a rare expert in a tiny Judaic heretical sect: "at home, before they threw him out, they had esteemed him because no one knew what he knew". His wife, so recently a top-ranking physicist, is now a near-madwoman who refuses to wear shoes any more because she might never afford a new pair. Rose has almost nothing to her name except a couple of old classic English novels and a ragged children's book mysteriously left among her father's belongings; she cannot imagine why he'd have kept such a sentimental object. Coincidentally, the family is surviving on haphazard "donations" from James A'Bair, a young American heir to a fortune, world famous, "the way, in those early years of movie cartoons, Mickey Mouse was famous", for being the original "Bear Boy" in the well-known series of children's books to which Rose's inherited book belongs. James, himself a kind of wandering vagrant, arrives at the house bringing laughter, alcohol and the very perilous slapdashness of a far-too-juvenile god.

The Bear Boy is characteristically wry and wondrous at once. The title for the American edition, Heir to the Glimmering World , laid a clear emphasis on its preoccupation with legacy. Its British title highlights other central concerns - savagery, childishness, and the worth and power of books. Books can bring dead histories, times, cities, happenings, even people, back to life and books can be full of a "golden charm of nostalgia" powerful enough to kill. The cunning literary layerings here are, of course, more than just brilliantly entertaining; in her novel's parallelling of how narratives work for adults and children and in its study of the way life becomes book and vice versa, Ozick has found another biting metaphor for the uneasy relationship between the continents. In her searing mid-1990s essay, "Who Owns Anne Frank?", she wrote about the transformation (particularly in the American stage and film dramatisations of the diary) of Frank into lovelorn teenage girl-next-door instead of bloody victim, an Americanisation that turned Frank into "useable goods" and her rage into a kind of "do-gooder abstraction".

Untenable and immovable states of innocence in the New World are Ozick's subject in The Bear Boy again. The Mitwissers' daughter thinks about the suicidally rich James: "did he not comprehend what it was to be without papers, to have no passport, to cower before a uniform, to pay for forged papers, to bribe to get genuine papers, to learn afterward that they were no longer valid, never to have good papers, a genuine passport! Never! He could not comprehend how free he was, how simple, he was like an angry child."

In everything Ozick writes, she regards the land of the free with the head-shaking disbelief of someone who knows. Yet, even in the knowledge that "the world was infinitely old, and filled to the brim with schisms and divisions and furies and losses", what in one of her essays she calls "the meliorist American in me" is at work - and at play. The Bear Boy is sparky, mischievous, witty, dazzlingly clever, properly dimensional, and written with such calmness so close to the foulness of history as to seem somehow beyond the world, almost mercilessly self-assured. But like all the best fiction, while it knows that books are a necessary refuge, it doesn't once dodge the heresies and complexities of the real and it works, like all Ozick's fine, uncompromising and paradoxical oeuvre, to leave both books and world at once more properly mysterious and better understood.

· Ali Smith's The Whole Story and Other Stories is published by Penguin.